18
Oct
11

Coal India flip flop..

Last week Coal India was directed by the government to give power companies priority in coal supply over e-auctions. Company is allowed to e-auction 10% of its total production. Concern was mainly over the price at which it will be done. In  case the supply is done at long-term Fuel Supply Agreement (FSA) or notified prices then share price should correct some more. E-auction is done at market prices which is 70-80% higher than FSA prices. Coal Minister clarified that supply would be done at market prices http://online.wsj.com/article/SB10001424052970203914304576626872981845278.html.

But next day Coal India said, assured coal supply out of e-auction quota to NTPC would be done at FSA prices. It was a complete change in one day. Coal India share price continued to correct. PSU giant said price decision has been taken only for October and it will be reviewed every month. Apart from this new trouble, company is also negotiating with workers on bonus and wage issues. Workers have threatened to go on 3 day strike if their bonus demand is not met. Although after yesterday meeting with Coal Minister, workers have cancelled their proposed strike. Bonus has been increased from 17k to 20k.

It goes without saying that company is facing structural issues with production ramp-up. One issue or other is confronting company. Sometime it is  environmental clearance, seasonal monsoon or logistic issues like takeoff from pit heads. I think upside in Coal India is capped from current levels. For October series I have sold Coal India 380 and 400 calls. I have also sold 280 put.

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